Thread: Investing for teenagers

Well I'll be an avid reader of this, I applied to analytical finance, am I on the right track?
lets hope this helps, cause I wanna get rich, bitch .

I'm liking this idea.

In the way of careers, too many people flock to finance related jobs because in their mind it is some virtual money tree. It is not, in finance jobs you have to compete with some human pitbulls, while managing someone else's money for the majority of the time.

I would advise people to get some idea of where you want to work, assess the economy of the place, see which jobs are the highest paid and which ones will probably dominate in terms of future earning potential. Do not overlook the sciences and engineering. Civil engineering for instance is a fairly good feild to get into in places where there is a lot of infrastructural work being done.

On a more general note, getting rich requires a lot of luck or a lot of determination,... better with a nice combination of both. I would advise people not to plan to get rich, just plan how you expect to be happy and work towards that (NO...money cannot buy happiness).

Ch. 1

Budgeting:

Budgeting is nothing more then setting up a guideline on how to manage your money. Most of us do not like this word but trust me, there are many benefits to setting up a budget.

The first step in setting up your own budget is tracking your expenses for an entire month. You can do this by keeping up with all of your receipts and deposits. When you calculate how much you have spent, put your receipts in to separate categories:

1. Food
2. Clothing
3. Rent (and mortgage)
4. Utilities
5. Transportation (including gas and maintenance)
6. Hospital care
7. Housing
8. Insurance
9. Recreation and Entertainment

There are more categories and you should add if applicable.

To set up your budget, simply put the total of everything you spent in the categories and add them up. This is the total Average Propensity to Consume. Meaning, this is how much you spend each month instead of save.

Once you have set up this budget, take a look at categories in which you think you could decrease spending and save money. Rent, Utilities, Insurance, Hospital Care, Housing and Transportation are usually fixed expenses. If you decrease the amount of spending on Recreation and Entertainment as well as clothing by 30%, do not increase your food spending by 60%. That will negate the entire process and your budget will become useless.

For example: (based on a $600 dollar average monthly income of most high school and college students)

1. Food - 80
2. Clothing - 150
3. Rent (and mortgage) - 0
4. Utilities - 0
5. Transportation (including gas and maintenance) - 100
6. Hospital Care - 0
7. Housing - 0
8. Insurance - 120
9. Recreation and Entertainment - 140

By this example, you have an average propensity to consume of 98%. This is not a good number in which you only save 10 dollars a month or 120 dollars per year. If you take a good look at your budget and see what you can cut back on you will see that you are spending too much in certain categories.

Let’s take a second look at your budget. It seems to me that my spending habits in clothing and Recreation and entertainment are way too high. Therefore, lets take a look at what I could do to save a little. If I save only 30% more off of each of those categories I will have saved 87 dollars a month. I would round it off to save a solid 90 dollars a month from those two categories. Along with your 10 dollars that you do not spend, you will increase your savings to 1200 dollars per year!

But what if I don’t have a job?

With any kind of cash flow, you can set up a budget. Whether it be an allowance, interest off of a CD that your parents saved for you, or anything then you can start a budget! I recommend getting a job when you turn of age. Still it is your choice.

Tip: Buy a marble notebook and keep track of all your personal finances of everything that you have bought and saved. This will help you keep track of all your money and help you save more in the long run.

Tip: Be sure to build up a small emergency fund. The amount you should have in this fund should be at least three months pay. Six months is preferable. This way, you can have enough money to live on between jobs to pay bills and live the lifestyle that you have had until you get another job. This is also great for young people because if you quit your job, you will be able to live off of that money for quite awhile. I recommend investing at least 3% of your paycheck into this fund until you get up to the proper amount of months.

In the way of careers, too many people flock to finance related jobs because in their mind it is some virtual money tree. It is not, in finance jobs you have to compete with some human pitbulls, while managing someone else's money for the majority of the time.

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Yeah, I figured the actuarial profession oughta do it, so I'm going for that with the analytical finance.
Did my research before hand, checked out how much money they make per year, asked around etc, that's some mad amount money they make, to whomever is interested .
I guess it's because people would rather die then do statistics (I know I find it dreary at times, a warning for the less patient), thus they are in demand in the labour market. You gotta study some science too.

would advise people not to plan to get rich, just plan how you expect to be happy and work towards that (NO...money cannot buy happiness).[/b]

so true.

Not bad Mr. Locke, Not bad.

I my self am closing on a mortgage for a six unit property. It was a forclosed home so im paying only 37 percent of its assesed value, it immaculate. Im hiring a property managment co, whom will deduct eight percent of the gross income. Once i gain a majority posession of the property (I will own, upon closing, 50 percent of its equity and the bank own the other 50) I will form a LLC to help oversea and seperate the property income. Any of my personall saving will go into a sort of trsut fund to further protect my finances.

Mr. Locke sounds like he knows what he is doing, i suggest you all listen.

The one large hurdle i had to overcome was the lack of a credit history. I suggest when you get a job and for most of you in conjunction with your rents help, get a credit card, make a large purchase and make sure you pay off the bills everymoth. in as little as six months you can have PERFECT credit history and after a year of holding it there you will have no problem with most any investments you may come across.

If some of you are thiunking money and wealth isent evereything. it isent, but having a well-to-do income and a little financial security can make your life a whole lot easier.

- Wayne -

To set up your budget, simply put the total of everything you spent in the categories and add them up. This is the total Average Propensity to Consume. Meaning, this is how much you spend each month instead of save.

[/b]

Ha! So that's what that means, man, no wonder some things in micro and macro economics where such a bitch, don't why I didn't understand it though, plus my textbook was crap. Anyway, thanx for that, my economic terminology just improved.

Godsfusion, I'm very excited for you. Are you going to try to buy more property to rent out?

No need to form an LLC unless your taxes are much lower. (which it won't be.) If you are just going to separate your funds and pay your property management co. then I would reccomend keeping it on your personal taxes and deducting depreciation and home improvement (among other things) from your income to pay less taxes. I guarantee that you will get many tax breaks. I suggest that you start making your mortgage payments and add a little extra (if you can, check with your bank). Once you have paid off that property, move to another location.

If you are going to invest in any other rental property and are going to make a business out of it, I suggest that you create an LLC that leases personal AND business properties. (There is a lot of money in it.)

Try to establish your credit. I will post my chapter on credit cards later. (If you want to read it now, PM me about it.)

Keep it simple. (There are programs out there for rental properties that I suggest you get.) Good luck man, glad to hear of your success.


As for the rest of you, here is what I have of Ch2 and Ch3. This is by far not finnished as I am trying to get this personal finance book published within the next year. So I'm taking my time. PM me if you want to read further, the next chapter is about investing your money.



Ch. 2

Financial Planning:

The main goal of financial planning is setting up financial goals and how to obtain them. This is what you need to think about doing, and this is how you are going to get there:

Once a year, start a balance sheet and an income and expense statement. These statements can be found by a simple search on the Internet. Follow the directions carefully. These types of reports will give you a snapshot of your finances. By doing this, you can accurately measure how much you are spending, how much your worth, your debt ratios, your liquidity ratios, and your savings ratio’s. These statements will also tell you how much you are actually worth. These statements are absolutely necessary to keep track of your finances. The best thing about this is that you only have to do this once or twice a year, unlike your budget sheet.

Keeping track of your expenses is the ultimate way of saving money.

Here are a few things that you can do to improve your savings scheme:

1. Make saving a priority.
2. Observe and take notes on your spending habits
3. Reinvest interest and dividends
4. Put bonuses and money from raises into your savings. Keep your lifestyle the same.
5. Make sure you know exactly how much you are getting from your investments
6. If your company allows it, set up a payroll deduction.
7. Set up a retirement plan
8. Work a little harder and get that extra money. Not watching TV in the evenings will help you save up a considerable amount and be more efficient. Eventually you will get a raise and/or bonus.
9. Pay off any and all debts
10. You do not have to get the most expensive things to have a great quality of life. Save whenever possible.
11. Enjoy and spend your money occasionally. If you do this, then saving the money will become all the easier.

Types of life goals:

ï‚· Short term goals: These are goals that you can obtain in less than one year. Such as buying a new TV set, radio, or computer.

ï‚· Intermediate goals: These are goals that you can obtain in less than 5 years. Such as buying a new car and getting a down payment for a house. Even buying a house is an intermediate goal. Paying it off should be accomplished way before retirement.

ï‚· Long Term Goals: Long term goals should include those things that you can accomplish through a lifetime of saving. This can include paying off your house and saving up enough money to retire at an early age. Long term goals are probably the most important in life.

Diversifying your savings.

For example, if you save 20% of your annual budget, you can split up your savings into different categories. Let’s say:

New TV set – 1%
New Car in 5 years – 5%
Retirement – 7%
Emergency Savings – 1%
House - 6% (if you have already put a down payment on a house, put this savings toward retirement or another high interest account.)

When one of your goals is completed, such as buying a new TV set, put that percent back into another category, preferably retirement.


Ch. 3

Where does money come from?

Money can come from various sources. Mainly count on your own budget and savings plan. Though, sometimes you get lucky and have a large stash of money waiting to be given to you. This is either because of inheritance, court money, or a large amount of cash as a gift for a special occasion. There are other ways, of course to get this money, but these are the most common.

So, what should I do with this large amount of money?

Well, it all goes back on what you want to invest in. I recommend that you save at least 75% into a retirement account such as a Roth IRA or a Traditional IRA. This is only if you are young enough to take the risk.

It’s all about the interest and benefits. Look into each plan that your bank will offer to you. Do no let them boss you around and make the investment for you.

Define what it is you want and how long it’s going to take for you to get there.

Once you have done this, it will be easier to get started in your investment process. If you need money regularly, you should not invest into an IRA at a young age. It is best to invest as early as possible in your lifetime.


Thank you, please leave comments. I know this is sort of soggy and barebones, I will add stories and make it more interesting as the book develops. Thank you everyone.

SB

Godsfusion, I'm very excited for you. Are you going to try to buy more property to rent out?

No need to form an LLC unless your taxes are much lower. (which it won't be.) If you are just going to separate your funds and pay your property management co. then I would reccomend keeping it on your personal taxes and deducting depreciation and home improvement (among other things) from your income to pay less taxes. I guarantee that you will get many tax breaks. I suggest that you start making your mortgage payments and add a little extra (if you can, check with your bank). Once you have paid off that property, move to another location.

If you are going to invest in any other rental property and are going to make a business out of it, I suggest that you create an LLC that leases personal AND business properties. (There is a lot of money in it.)

Try to establish your credit. I will post my chapter on credit cards later. (If you want to read it now, PM me about it.)

Keep it simple. (There are programs out there for rental properties that I suggest you get.) Good luck man, glad to hear of your success.
[/b]

Godsfusion, I'm very excited for you. Are you going to try to buy more property to rent out?

Yes, my city is an old mill town from the early nineteenth and twentyeth centuries so there are a lot of large 6+ unit properties. If im patient I can unually find a perfect Multi-unit property that was forclosed on. So like right now the property im closing on is assesed at 390,000 and im paying 145,000. Propety is one of the most stable things to invest in and im eager to jump in on it.

No need to form an LLC unless your taxes are much lower. (which it won't be.) If you are just going to separate your funds and pay your property management co. then I would reccomend keeping it on your personal taxes and deducting depreciation and home improvement (among other things) from your income to pay less taxes. I guarantee that you will get many tax breaks. I suggest that you start making your mortgage payments and add a little extra (if you can, check with your bank). Once you have paid off that property, move to another location.

If you are going to invest in any other rental property and are going to make a business out of it, I suggest that you create an LLC that leases personal AND business properties. (There is a lot of money in it.)

I live in Massachusetts we have the HIHGEST taxes in all the country. Yes the LLC will be formed to provide for the properties from a business stand point. I realize that while living in one building i have a lot of tax breaks but after I buy the second+, the taxes wont be as lienent. An LLC with succesfully seperate my Business and personal income.

Because im at the end of the high speed commuter train out of boston, median rent for a single bedroom is $760 a month. im lowering it to $550-$600 or so a month to help get that competitve edge. as i stated i got the propety as a forclosure, so its already so fing low. Something like 900 in tottal a month in mortgage payments. Yes, If all goes as planned and i have no vacancies ill have a monthy groos income of $2750-$3000. The prop mang company will take 8-10 percent of the gross and the rest will go into high intrest savings account for the 'business'. Right now my meager jop keep me afloat so i wont have much of a need for taking much if any money from the 'business account'. But as soon as i get everything in working order im thinking of refinancing and lowering the mortgage from a thirty to a fifteen years amortized mortgage, since ill be able to still pay a 1600 a month morgage.

im not using a bank, they are horrible when it comes to mortgages, instead im going throuhg a 'small-business' commercial (because the prop is over the four unit max for massachusetts)loan company, they are a lot more leinient and user friendly pér-sé.

im not planning on jumping around and buying up property but with a year or so i plan of purchasing a second property provided the inital investment is running smoothly.


Try to establish your credit. I will post my chapter on credit cards later. (If you want to read it now, PM me about it.)

As I had mentioed thats what I did, I had no credit and within a six month period I had a credit history worht something and it was/is PERFECT. I had bought a few things on my credit card and used my money in my savings account to pay off the payments a week ahead of time. Using my perfect chedit history and the high equity on hte property i had no problem procuring a motgage the only problem i ran across was sifting through them all and compairing and doing my research to pick the best.

Keep it simple. (There are programs out there for rental properties that I suggest you get.) Good luck man, glad to hear of your success.

Beleive me if its out there ive already heard of it at least once.



My ultimate goal is to purchase one of the hundred of mills along the hudson.merrimak ornashua rivers and convert it into low income apartments. most of the properties that have done this early fit several hundred huge apts withing its walls. Renting at a 'low-income stand point' the apts fill up quickly and stay full, ensuring a steady and stable income.

Granted it will be a couple of million even after city and state help, it will be well worht it once the mill is in full bloom.

- wayne -

It seems like the more high-paying job you're getting schooling for, the more education your going for...thus the more money out the ass, kind of like a vicious cycle..

Eh, maybe it's because I'm rich, but I have no concern at all for money. It's just something I use to get things. Also, I don't really have any life goals. I don't think this kind of thing is for me.

Quite possibly the only reason im going the route i am now, is because my folks have never given me a dime. as far as chores go you live in your house with your family, it is your responsibilty to help out, and thus should have no desire to get an Allowance. Nor should you just be given money every week 'just to have it'. i grew up knowing hte importance of a dolar and how far it goes, and I realized how far i can go with just a little effort and not relying on others for things.

- Wayne -

Eh, maybe it's because I'm rich, but I have no concern at all for money. It's just something I use to get things. Also, I don't really have any life goals. I don't think this kind of thing is for me.
[/b]

have you heard of the Atom foundation for impoverished Atoms? blank cheques are always welcome

This next chapter is, in no way finnished just yet. I just thought I would post it now for those of you who are keeping up with the discussion.

Ch. 4

Investing:

So, you have set up your budget and done all of your financial planning. What do you do next?

It very well depends on what you are trying to save up for. Define what it is that you want and then save for it.

ï‚· Are you saving up for a house?
ï‚· Are you saving up for a nice car?
ï‚· Are you saving up for retirement?

These are questions that you should ask yourself before you make any long-term commitment. There are, though, ways that you can invest into multiple things while gaining wealth.


Ok, I have thought about it, now where do I go to invest my money?

There are several institutions in which you can invest your money. There are banks with allow you to have one on one conversations on what is best to make your money work for you. There are also several online options for you to pick from. These in my opinion are not the best because you do not get the benefit of establishing a relationship with your banker.

Be sure to ask your banker or online banker certain questions about the account.

1. Is the bank certified and follow all legal actions according to State and Federal regulations? (Usually this one is a given.)
2. Do you have financial planning available to customers?
3. Are there any service charges for your checking accounts?
4. What is the minimum amount that you can keep in your savings account?
5. Are all employees of the bank certified in their specific fields? (Again, usually a given)
6. Is there any investment procedures?
7. Give them a situation in which they would tell you what would be best for your financial future. (I.E. Tell them that you want to invest one thousand dollars, what plan would benefit me the most and why?)
8. Any other questions that you feel applicable.


Joint checking accounts:

If you are not 18 yet, there are also several options for you to choose from. Firstly, you are going to have to get a joint checking account with your most trustworthy parent. I recommend the joint checking account because when you go to college you will be able to receive funds into that account without having to wire money or come home for the weekend. One main thing is to always reconcile your checkbook. Keep up with all checks that you have written and deduct accordingly. Add when depositing.


Savings accounts:

The next step in getting started is to also set up a savings account. The savings account will allow you to save as much money as you can without obligating it to be in an interest account in which you have to wait to withdraw. The savings account is the best because you will be able to put money into that account and have it there when you want to move your money into an interest savings account. It basically acts as a hub for your money. This account is the best to put your Emergency Fund in.

Investment accounts:


CD’s (Certificates of Deposit)

CD funds must remain in the account for a specified period of time. You make an obligation to keep your money in the account and can not withdraw the money out until the maturity date. The maturity date can range anywhere from 7 days to 7 or more years!

The most interesting form of investing in CD’s is called “CD Stacking.� CD stacking is when you invest into multiple CD’s at one time, each with a different maturity date. Make your largest investment your longest maturity date. Invest by each year. When a maturity date comes around, reinvest that money into the year after your longest year. Keep going.

A CD has lower interest then a lot of other interest savings accounts because it is less risky then other investments. CD’s are good for people who have already made their money and are looking to invest in safer types of investing. A CD is also good for young people who have happened upon a large amount of money and can only put four thousand in a Roth IRA per year for retirement.

U.S. Treasury Bills

These T-Bills are considered the most safest form for savings because it is backed by the Federal Government. You’re guaranteed your money. This type of investment is also known best as a safe and attractive return because it is free from state and local income taxes. T-bills are also very cashable and can be sold at any time. This makes a good investment for a person who wants to keep their money safe. Still though, as a young person, you should invest in riskier investments because you are young.

Series EE Bonds

Series EE Bonds are backed by the US Government. They are also called “Patriot Bonds� in honor of 9/11. The best thing about these bonds is that they can be redeemed anytime after six months. Interest rates are calculated every 6 months. However, these bonds have low interest rates and will not yield the kind of amounts that you should when you are younger.

Money Market Accounts

These accounts are best for putting money in that you want to invest because when needed, you can withdraw your funds out, as this type of account is very liquid. The interest rates are high, and I recommend investing in this for younger people. The thing about a Money Market Account is that it is backed by the Federal Government and other banks. This is still a safe way to invest money.

While Money Market Accounts are liquid, there are still penalty fees if the money is withdrawn. This means that when you want to withdraw funds, it should be for something large. This account should never ever be mistaken and used as a checking account. This type of investment is great for those who want to draw out a large amount of funds for a house or to pay off education loans.

Mutual Funds

Mutual Funds (money market mutual funds) are not backed by the Federal Government and is not insured by the banks. However, this is the riskiest investment, but by far the best for the younger crowd. Interest rates range anywhere from 6 to 15%. This is excellent, but still there is “no guarantee on returns.� That’s just how they guarantee themselves not to get into debt. In my opinion, they are still very safe.

Stocks – Hire a broker or get your banker to hire a broker to diversify your stocks and keep track with all transactions.

Bonds - While bonds are great, you will still be able to purchase them through your banker which will in turn get in contact with your broker/manager about what to invest in. Bonds usually require a lot of money to make any money.

“Roth IRA:

Eligibility – Any age with compensation (subject to income limits); also non-working spouses.1
Single filers income up to $95,000 (for full contribution)
Joint filers income up to $150,000 (for full contribution)

Maximum Annual Contribution -- $4,000 or 100% of compensation.3 Individuals age 50 or older (in the calendar year for which they make the contribution) can contribute an additional "catch-up" contribution. The limit for catch-up contributions is $500 for 2005 and $1,000 for 2006.

Contribution Deductibility – Contributions are not tax-deductible

Federal Tax Advantages – Federal tax-free growth

Withdrawals – Can withdraw contributions anytime without penalty or tax

Roth IRA’s are good for those who want to pay taxes now instead of later. With a larger amount of savings when you retire, you will end up paying more in taxes then than you will pay taxes now. This is an excellent way to invest for retirement.

Traditional IRA:

Eligibility – Under age 70 ½ with compensation. No income limits.

Maximum Annual Contribution -- $4,000 or 100% of compensation.3 Individuals age 50 or older (in the calendar year for which they make the contribution) can contribute an additional "catch-up" contribution. The limit for catch-up contributions is $500 for 2005 and $1,000 for 2006.

Contribution deductibility – Contributions may be tax-deductible

Federal Tax Advantages – Federal tax-deferred growth

Withdrawals – May withdraw after age 59 ½ without penalty.� (www.fidelity.com)

Only thing with these accounts is that you will be tax-free until you withdraw it for
retirement. The main thing to keep in mind about this account is that you will end up
paying more in taxes then you would be paying if you got a Roth IRA. This type of
account is best for those who have started late in life and do not wish to pay taxes now,
but later. Personally, I would want to get taxed on 161,000 dollars then 800,000 dollars.

Summary:

A few of the main reasons why people do not accumulate wealth is because they start to late, they put in way too little or they invest too conservatively. Knowing this, we can better ourselves by investing as much as we can and making our money work for us by investing in risky accounts when we’re younger.

When thinking about how much you need to retire, know that you have to have the same amount of income or more after you retire.

SB